Huawei episode rat­tles in­vestor con­fi­dence

Financial Chronicle - - DIVE -

“Af­ter some sem­blance of tran­quil­lity on Wed­nes­day, mar­kets are in the thick of it as news re­gard­ing Chi­nese smart­phone com­pany Huawei sug­gest that US-China ten­sions are well be­yond the tit for tat tar­iff war,” said Oanda’s Stephen Innes.

On the for­eign ex­change mar­kets, the pound held up de­spite Bri­tain lurch­ing to­ward a po­ten­tial no-deal Brexit. Prime min­is­ter Theresa May faces de­feat in her bid to push a con­tro­ver­sial agree­ment with the EU through Par­lia­ment.

Trump and Xi had sparked a brief global mar­kets rally on Mon­day af­ter ap­pear­ing to clinch a tar­iffs cease­fire last week­end in Buenos Aires. But the rally ran out of steam with in­vestors fret­ting over the frag­ile state of the world econ­omy and Brexit un­cer­tainty.

“Stocks have sold-off se­verely as traders are wor­ried that US-China re­la­tions have de­te­ri­o­rated,” said CMC Mar­kets an­a­lyst David Mad­den. “The ar­rest of Huawei CFO Meng Wanzhou in Canada over the week­end has rat­tled in­vestor con­fi­dence. US-China re­la­tions were on the mend af­ter the G20 sum­mit and now the ar­rest might have thrown a span­ner in the works.”

Meng is the daugh­ter of com­pany founder Ren Zhengfei, a for­mer Chi­nese Peo­ple’s Lib­er­a­tion Army en­gi­neer. The com­pany has been in­ves­ti­gated by the US in­tel­li­gence, which deemed it a na­tional se­cu­rity threat, and such con­cerns have been voiced else­where too.

China has ex­pressed out­rage, urg­ing Canada and the US to “im­me­di­ately cor­rect the wrong­do­ing.” “This week has been wild and there’s still a way to go be­fore it is over,” said Spreadex an­a­lyst Con­nor Camp­bell. In­vestors are con­cerned that the Huawei news “will do ir­rev­o­ca­ble dam­age to the frag­ile trade truce,” he added.

Lon­don-listed min­ing and en­ergy giants saw their share prices drop on wor­ries about de­mand from key com­mod­ity con­sumer China.

Brent oil prices, mean­while, briefly tum­bled be­low $60 per bar­rel on trader fears of an in­suf­fi­cient out­put cut at a Vi­enna OPEC meet­ing. “Not only were min­ers in deep dis­tress over the po­ten­tial for an­other nose­dive in US-China re­la­tions, but BP and Shell plunged 3 per cent apiece as Brent crude tum­bled back un­der $60,” Camp­bell noted.

Opec mem­bers and other oil-pro­duc­ing coun­tries are mulling out­put cuts to prop up plung­ing prices, de­fy­ing re­peated calls by Trump that they keep the taps open. “We’re look­ing for a suf­fi­cient cut to bal­ance the mar­ket, equally dis­trib­uted be­tween coun­tries,” Saudi oil min­is­ter Khalid al-Falih told re­porters in re­marks in­ter­preted by some ob­servers as overly cau­tious.

“Ex­pec­ta­tions for a sup­ply cut are high given that the price of oil has plum­meted by over a third in just a lit­tle more than two months,” said XTB an­a­lyst David Cheetham.

“But the early in­di­ca­tions are that the size of the re­duc­tion may not be enough to halt the mar­ket’s de­clines.”

The Huawei news saw tech firms ham­mered on Asian mar­kets. Hong Kong-listed ZTE, hit by a US ban­ning or­der over se­cu­rity fears this year be­fore that was re­duced to a mas­sive fine, was al­most six per cent down.

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